Should you trust house price figures?Every other day seems to bring a fresh house price survey. However each new analysis often contradicts the last. So how do house price surveys actually work and which ones should you trust?
This article covers:
· Land Registry figures
· Office of the Deputy Prime Minister (ODPM) figures
· Nationwide and Halifax figures
· Royal Institution of Chartered Surveyors (RICS) figures
· Hometrack and Rightmove figures
· SmartNewHomes’ figures
· Who should you believe?
· Why seasonal trends are important
Land Registry figuresThis survey, which is released every three months, is thought to be the most comprehensive of the bunch and the most authoritative. All property sales in England and Wales have to be logged with the Land Registry. The proceeds of all property transactions are added up and then divided by the total number of sales to reach an average sale price.
However, repossessions and property transfers following a divorce are excluded to avoid skewing the sample. Despite these anomalies, and because it takes nearly all residential property sales into account, the Land Registry’s figures can offer a good indication of not only national, but local, prices. The Registry even provides an accurate picture of prices down at postcode level. However, since the survey only comes out once every three months, the figures are out of date by the time they are published.
A similar survey is produced in Scotland, known as the Register of Scotland.
Office of the Deputy Prime Minister (ODPM) figures
The Office of the Deputy Prime Minister (ODPM) has launched its own monthly house price index. It has produced an index since 1968, but only quarterly. This latest move is an attempt to create an authoritative index, although a government spokesman has admitted it is still “slightly less than definitive”.
The government survey uses lending information from about 50 lenders, collected through the Survey of Mortgage Lenders.
Unlike the Land Registry survey, the new government index does not contain information on cash purchases, which account for about a quarter of the market.
Another drawback is that it is not very timely, appearing two months in arrears. But the survey does offer indexes for the entire UK, the major regions and a separate appraisal for first-time buyers.
Nationwide and Halifax figures
The Nationwide and Halifax provide the best-known snapshots of the property market. Both surveys cover the entire UK, rather than just England and Wales.
Their figures are often similar as both are based on the purchase price agreed after its mortgage customers have completed a survey. These figures are compiled only from property sales financed by mortgage lending and this means that cash sales are not factored into the equation.
Royal Institution of Chartered Surveyors (RICS) figures
This survey reflects confidence in the property market instead of what actually is happening to house prices. Three hundred surveyors and estate agents in England and Wales are asked if they feel prices are falling or rising. Respondents are also quizzed on a host of related issues, like whether the numbers of buyers and sellers are rising or falling.
Generally, the RICS’ survey is the first to show any change in the market. For instance, RICS might report a dip in house price growth during the first half of the year, while other surveys take longer to register a significant slowdown.
Remember that figures are weighted towards high-value properties in places like London.
Hometrack and Rightmove figures
Both of these property websites produce their own house price surveys. For Hometrack, data is collected from 3,500 estate agent offices from all 2,200 postcode areas in England and Wales. The agents report whether asking prices are rising or falling.
Rightmove’s survey operates differently to Hometrack’s, by collating asking prices for houses placed on its own website over the previous month. The sample size is quite extensive, with Rightmove claiming to display around 35% of all homes for sale. Over half of the UK’s largest estate agency chains list their properties on its site. The downside is that Rightmove does not reflect the amount properties actually sell for.
SmartNewHomes’ figures
SmartNewHomes’ monthly indices are gathered from its website, with 23 out of 25 of the top housebuilders. SmartNewHomes’ figures are based on asking prices for different sorts of new homes. The analysis also tracks what people are searching for on the website, producing a ‘demand index’ – useful when looking at changes in buyer behaviour.
Who should you believe?
Research expert Richard Donnell, comments: “Percentages are brilliant, but they have a tendency to produce the most headline-grabbing stories. It is important to stand back and think of the bigger picture, examining quarterly or yearly changes.”
He finds Rightmove’s survey helpful, as the sample is large. “Indices from the Land Registry and the ODPM are the best, but they are retrospective. You shouldn’t look at indices if you want to go forward.”
Linda Beaney from Beaney Pearce, says: “You need to look closely at how the surveys come up with their views and make sure local and national market reports coincide. Often, price surveys are not relevant to individual circumstances.”
Beaney also argues that the body of the articles often do not warrant the startling headlines and says people should beware of political manipulation. “I’m sure statisticians within major groups sit down and work out how to get the headlines, and a lot depends on how you ask the questions.”
Why seasonal trends are important
Agent Jackson-Stops & Staff also points out that many surveys don’t reflect seasonal trends. “In the remote areas of Yorkshire, for example, the market is highly seasonal, with little property changing hands throughout winter and early spring. During that time, prices reflect the previous season, catching up with the rest of us when this market ‘opens’ again in early May and there is a significant shift in prices.
In contrast, the market for second homes along the south coast can be influenced more by the stock market and the City rather than by local factors. Market conditions can vary greatly because they attract demand from different sources. It is all about knowing where that demand is coming from.”